A deficit occurs when expenditure exceeds the revenue in a country by the end of a financial year. Many economists have been studying and exploring the reasons for such deficit, as well as measures to combat it.
Below is a thorough discussion of the revenue deficit that can be helpful for aspirants across the examination.
This article will discuss one of the important economics concepts – revenue deficit in the context of the IAS Exam.
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What Is Revenue Deficit?
A revenue deficit is a shortage of Government’s funds to maintain daily affairs. It occurs when total revenue expenditure surpasses total revenue receipts. Thus, it means a difference between net income and expenditure. However, it is certainly different from the fiscal deficit, which is a difference between actual and budgeted income.
The aspirants can read about the Fiscal Deficit from the linked article.
Calculation of Revenue Deficit
The formula of revenue deficit is as follows:
Revenue deficit= Total revenue receipts – Total revenue expenditure.
Revenue receipts do not create any liability to reduce the Government’s assets. It is further classified into 2 sections as follows:
- Receipt from direct and indirect tax
- Receipts from non-tax revenue
On the other hand, revenue expenditure does not help create assets or reduce liabilities. It is also divided into 2 sections:
- Plan revenue expenditure
- Non-plan revenue expenditure
What Is Effective Revenue Deficit?
Effective revenue deficit is a difference between grants for capital assets creation and revenue deficit. It aims to deduct the assets exhausted from borrowing to finance capital expenditure.
Disadvantages of Revenue Deficit
If in a large amount, it can affect credit listing as well as the Government’s sprint. It increases the borrower or repayment liabilities if not taken care of.
How to Check Revenue Deficit
Government can take a few of the following measures to knock out such deficit:
- Government can raise its receipt through tax receipts by utilising indirect taxes.
- It may also amplify its non-tax receipt.
- In addition, it can use its capital receipt through selling its existing assets or borrowings from outside.
- Lastly, the Government can endeavour to bring down unnecessary expenditures.
A revenue deficit can cause several economic issues like inflation in the far future if it remains unchecked. It causes borrowing or asset selling to meet the deficit, increasing repayment liability and reducing assets.
Furthermore, candidates can learn more about the detailed UPSC Syllabus and exam pattern for the preliminary and mains phase of the examination at the linked article. Analysing the syllabus will help candidates accordingly schedule a study plan.
Frequently Asked Questions about Revenue Deficit
Is fiscal deficit similar to revenue deficit?
No, a fiscal deficit is different from a revenue deficit. A revenue deficit means a difference between net revenue receipt and net revenue expenditure. Contrarily, a fiscal deficit implies a difference between actual and budgeted income.
Can a revenue deficit cause inflation?
Indeed, a hefty revenue deficit can cause inflation in a country if it remains unchecked.
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